Toronto-Dominion Bank (TSX:TD)(NYSE:TD) is a core holding in many Canadian accounts, and investors are always looking for a good opportunity to pick up the stock.

The shares are down about 7% since the start of the year, which isn’t bad in the current environment, but concerns about the economy and the housing market are keeping some investors on the sidelines.

Let’s take a look the bank to see if this is a safe time to start a new position.

Strong earnings

In its third quarter, which ended July 31, TD reported adjusted net income of $2.29 billion, or $1.20 per share, a 4% gain over the same period last year.

TD is heavily geared towards retail banking, both in Canada and the United States. This segment of the industry tends to be the most stable and that’s why TD has traditionally been a top pick among bank investors.

The Canadian retail operations earned $1.6 billion, an 8% rise over Q3 2014, and the American retail group brought in $450 million, which was pretty much in line with the results in the previous year.

Over the past decade the company has spent nearly $17 billion to build the U.S. operations. The division still doesn’t enjoy the same margins as the Canadian unit, but management is working hard to change that.

CEO Bharat Masrani said he now has the scale he needs in the U.S. and is going to focus on driving organic growth, while making the operations more efficient.

In the spring, TD announced a restructuring program and took a charge of $228 million with changes targeting both the U.S and Canadian retail segments. As the process continues, investors should see the American operations become more profitable, but competitive challenges will remain.

On the wholesale side, TD delivered $239 million in net income, up 11% year over year. The wholesale or capital markets area of banking tends to be quite volatile, but it represents a small part of TD’s overall profit profile, especially when compared with its peers.

Dividend growth

TD pays a dividend of $2.04 per share that yields about 4%. The company has a long history of steady dividend growth, and investors should see that trend continue.


Most bank investors are concerned about a Canadian housing bubble and the rout in the oil sector.

TD finished the third quarter with $241 billion in Canadian residential mortgages. Uninsured loans represent 43% of the portfolio and the loan-to-value ratio on that group is 59%. This means the housing market would have to drop off significantly over a short period of time for the bank to be materially affected. Most analysts expect a gradual pullback in housing prices.

On the energy side, TD has limited exposure, with less than 1% of the overall loan book connected to the oil and gas sector.

The company is well capitalized with a CET1 ratio of 10.1%.

Should you buy TD?

The stock trades at 10.7 times forward earnings, which is an attractive multiple for this bank. TD’s shares might see further weakness in the coming months, but investors with a long-term outlook should be comfortable buying the company at the current price.

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Fool contributor Andrew Walker has no position in any stocks mentioned.